Equity
Equity is the value you own in your business once debts are paid. See how to calculate it and build it.
June 2023 | Published by Xero
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Equity is the value left in your business once you subtract everything it owes from everything it owns. The formula is equity = assets – liabilities.
- Your equity figure shows lenders and investors how healthy your business is. It rises when you keep profits in the business and falls when you make losses or take money out.
- Equity appears on your balance sheet, which limited companies file with the Companies Registration Office as part of their annual return. Keeping it positive helps company directors meet their duties under the Companies Act 2014.
- Checking your equity monthly helps you spot changes early and plan growth and borrowing with confidence. Retaining profits and limiting drawings are the most direct ways to build it.
What is equity?
Equity is the part of your business you own outright, once every debt is accounted for. In accounting terms, it’s your assets minus your liabilities.
You can write it as two simple formulas:
- Equity = total assets – total liabilities
- Assets = liabilities + equity
If your business has assets worth €200,000 and liabilities of €80,000, your equity is €200,000 – €80,000 = €120,000. That €120,000 is the value belonging to you as owner, or to your shareholders.
Think of it like a house with a mortgage: the share you’ve paid off is yours, and the rest belongs to the bank. Knowing your equity shows you the bigger picture of your finances, beyond day-to-day cash flow.
Book value vs market value
Book value is the equity figure on your balance sheet, based on what your records say your assets and liabilities are worth. Market value is what a buyer or investor would pay for the business today.
The two often differ, because a balance sheet doesn’t capture things like customer loyalty or future growth. When you value a company for a sale or investment, book value is usually the starting point rather than the final price.
Types of equity
Equity has several meanings, and the right one depends on context. Outside finance, it also means fairness, such as treating people according to their needs in social policy or human rights.
In business and money, these are the types you’re most likely to meet.
Shareholder equity
Shareholder equity is the total value that belongs to a company’s shareholders. It’s mainly share capital, the money paid for shares, plus profits the company has kept after paying any dividends.
Owner’s equity
Owner’s equity works the same way but applies to sole traders and partnerships, not limited companies. It’s the owner’s personal stake in the business once all debts are covered, and this guide to owner’s equity explains capital and drawings in more detail.
Home equity
Home equity is the difference between your home’s current value and what you still owe on your mortgage. The Competition and Consumer Protection Commission (CCPC) gives this example: a €400,000 home with a €100,000 mortgage has €300,000 of equity.
If you use property as security for a business loan, it’s a useful figure to know. The CCPC notes that equity release products in Ireland are offered by a small number of firms, usually to homeowners aged around 60 or over.
Brand equity
Brand equity is the commercial value that comes from how customers see your brand. A strong reputation can help you charge higher prices and keep loyal customers, even though it doesn’t appear as a line on your balance sheet.
Private equity
Private equity is investment from funds that buy stakes in private companies. These investors look for businesses they can grow and later sell at a profit, so it becomes more relevant as your business scales.
What’s included in equity
Equity on a balance sheet is built from a handful of components, and the ones you’ll see depend on how your business is set up. Limited companies use the first three below, while sole traders and partnerships use the last two.
- Share capital, the money shareholders paid when the company issued shares
- Retained earnings, the profits kept in the company after tax and dividends
- Other reserves, such as gains from revaluing property
- Capital account, the running total of money an owner has put in plus profits earned
- Drawings, the money an owner takes out for personal use, which reduces equity
How to calculate equity in business
To calculate equity in business, subtract your total liabilities from your total assets. These steps work whether you’re a sole trader or a private limited company (LTD).
- List what the business owns and its current value.
- Add these up to get total assets.
- List and add up what the business owes to get total liabilities.
- Subtract total liabilities from total assets.
Here’s how that works in practice. Say your Dublin-based consultancy has these assets:
- €30,000 in cash in the bank
- €15,000 in invoices customers owe you
- €10,000 in office equipment and furniture
- €12,000 in a company vehicle
Your total assets come to €67,000. Your liabilities are:
- €20,000 left on a business loan
- €7,000 in unpaid supplier invoices
- €3,000 on a credit card
Your total liabilities are €30,000, so your equity is €67,000 – €30,000 = €37,000. That’s roughly what you’d keep if you sold every asset at these values and paid off all your debts.
Equity vs owner’s equity vs net worth
For most small businesses, equity, owner’s equity and net worth are the same figure: assets minus liabilities. What changes is the setting where you’ll see each term.
Shareholder equity appears in limited company accounts, and owner’s equity is common for sole traders and partnerships. Net worth is used more broadly, and your personal figure also includes assets outside the business, like the equity in your home.
Equity financing vs debt financing
Equity financing means selling part of your business to raise money, while debt financing means borrowing it. Each option affects your ownership and cash flow differently.
With equity financing, an investor gives you capital in exchange for a share of the business. You don’t repay the money, but you give up part of your ownership and future profits.
Debt financing usually means a bank loan or line of credit that you repay with interest. You keep full ownership, but the repayments are due however the business performs.
Ireland has some equity routes of its own. For qualifying high potential start-ups (HPSUs) developing new technologies, Enterprise Ireland offers co-funded equity investment of up to €800,000 through its Innovative HPSU Fund.
The Employment Investment Incentive (EII) is a Revenue tax relief that encourages individuals to invest equity in qualifying trading companies. Investors must hold their shares for at least four years.
In practice, many Irish small businesses fund themselves from their own resources. The Department of Finance SME Credit Demand Survey 2025 found that 16% of small and medium-sized enterprises (SMEs) applied for bank finance in 2025, down from 20% in 2024. Of the SMEs that didn’t apply, 82% said they had enough internal funds.
Why equity matters
Equity matters because it’s the figure outsiders use to judge your business’s strength. Lenders often compare your debt to your equity using a gearing ratio, and a lower ratio usually points to less risk.
Your equity figure shapes how:
- buyers value your business when you sell
- lenders assess your finances before approving loans or credit
- investors decide whether your business is worth backing
- you set insurance cover and plan for the future
Knowing your equity also gives you a clearer view of where your business stands, so you can make decisions with more certainty.
How equity changes
Equity changes every time your business makes a profit or loss, takes in capital or pays money out. Knowing what drives those movements helps you stay in control.
Equity goes up when:
- you keep profits in the business
- you or your co-owners put in more money
- the company issues new shares to investors
- assets such as property rise in value
Equity goes down when:
- the business makes a loss
- you take drawings for personal use
- the company pays dividends to shareholders
- assets lose value through depreciation or write-offs
Where equity is recorded and how it’s reported
Equity is recorded on your balance sheet, one of the three core financial statements. The balance sheet shows your assets, liabilities and equity at a specific point in time.
For financial reporting, most Irish private companies prepare accounts under Financial Reporting Standard 102 (FRS 102). Small companies using its Section 1A are encouraged, but not required, to include a statement of changes in equity.
That statement tracks how equity moved during the year, including profit or loss, dividends paid and new shares issued. The Financial Reporting Council (FRC) updated Section 1A disclosures for periods starting on or after 1 January 2026. Your accountant can confirm which rules apply to you.
Each year, an LTD must file an annual return, Form B1, with the Companies Registration Office (CRO). Most companies attach their financial statements, including the balance sheet that shows equity.
What is negative equity?
Negative equity means your liabilities are greater than your assets, so your business owes more than it owns. It can follow a run of losses, heavy borrowing or a sharp drop in asset values.
It’s a clear signal to act, because it can make new finance harder to secure and brings extra legal duties for company directors. Under section 610 of the Companies Act 2014, a court can make a company officer personally responsible, without limit, for company debts.
This applies if the officer was knowingly party to reckless or fraudulent trading, for example when the company is wound up. Under section 224A, directors must also have regard to creditors’ interests once they believe the company is, or is likely to be, unable to pay its debts.
If your equity turns negative, speak to an accountant or insolvency practitioner promptly. Acting early gives you more options to turn things around.
How to build equity in your business
You build equity in your business by earning more, keeping more of what you earn and managing what you owe. These practical steps help you do it.
1. Increase profitability
Review your pricing, cut costs that don’t pay their way and focus on your most profitable products or services. Every euro of retained profit adds directly to your equity.
2. Reinvest in the business
Instead of drawing out all your profits, put a portion into assets that earn a return. That could be equipment, training or marketing.
3. Reduce liabilities
Pay down loans and credit balances where you can. Lower debt means lower interest costs, so more profit stays in the business and adds to your equity.
4. Manage cash flow closely
Late customer payments can push you into borrowing to cover the gap. Tools like Xero’s online invoicing help you keep track of what customers owe you and send reminders.
5. Track your numbers regularly
Check your balance sheet every month, not just at year end. You’ll spot problems early and can act before they eat into your equity.
Track your business equity with Xero
Keeping an eye on your equity is simpler when your numbers are always up to date. Xero’s reporting and analytics tools give you a clear view of your balance sheet, so you can check your assets, liabilities and equity whenever you need to.
With automated bank feeds keeping your figures current, you can make funding and growth decisions with confidence. Ready to see where your business stands? Get one month free.
FAQs on equity
Here are quick answers to common questions about equity for Irish small businesses.
What is equity in simple terms?
Equity is your ownership stake in a business, measured in euro. It’s roughly what you’d have left if you closed today, sold all your assets at their recorded value and paid every debt.
What’s the difference between equity and shares?
Shares are the units of ownership a company issues, while equity is the total value those units hold. If you own 50 of 100 shares, you own half the company’s equity, whatever that equity is worth.
What is equity on a balance sheet?
It’s the section showing what belongs to the owners, listed after liabilities. Total assets always equal total liabilities plus equity, which is why a balance sheet balances.
What does equity mean on a house?
It’s your home’s current value minus the mortgage you still owe. Your home equity grows as you repay the mortgage or as the property rises in value.
What’s the difference between equity and profit?
Profit is what you earn over a period, shown on your profit and loss account. Equity is the total value you own at a point in time, and profit you keep adds to it.
How often should you calculate equity?
Check it at least monthly and before big decisions, such as taking out a loan or bringing in an investor. Accounting software with bank feeds keeps the figure fresh between checks.
Can equity be negative?
Yes, and it’s common in a start-up’s early years, when set-up losses exceed the capital invested, until profits or fresh capital restore it. Under Irish company law, directors owe the section 224A creditor duty to the company itself, so ask your accountant how it applies to you.
How can you increase business equity?
Retain more profit, add capital by investing more yourself or issuing new shares, and keep drawings and dividends below what the business earns. Small, consistent gains build equity over time.
Related terms
Learn more about equity
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.